What Every American Needs to Know About Economics

By David F. Rankin

The field of economics certainly is not as exact as the field of science, but there are principles of economics that, when violated, produce bad effects. The laws of supply and demand in a free market work so much better than any other system ever discovered when it comes to creating and allocating goods and services. However, there are always those who find fault with the process and want to substitute something else for the power and efficiency of the marketplace. This something else always seems to require the power of government.

It is easy to travel down this path full of promises about how wonderful everything will be if we just insert government power into this or that situation. This book is designed to remind the reader of the magic of the market and the role it has played in producing the world’s most powerful economy.

• Language: English
• Publisher: Xlibris US
• Release date: Jul 28, 2018
• ISBN: 9781984537492

David F. Rankin

Dr. David F. Rankin is President Emeritus at Southern Arkansas University. He has been a professor at SAU for many years and has taught thousands of students in his field of economics and finance. He holds a B.S.B.A. in management from the University of Arkansas, an M.B.A. in finance from Louisiana Tech University, and a Ph.D. in finance from the University of Mississippi. Dr. Rankin also holds the Chartered Financial Analyst (CFA) designation. He has served as Economic Advisor to the Governor of Arkansas and chairman of the Governor’s Council of Economic Advisers for the past 22 years, having been appointed by then Governor Mike Huckabee in 1996. He has been recognized by the Freedom’s Foundation and the Americanism Educational League for excellence in free market education and is current chairman of the Golden Triangle Economic Development Council. He is married to Toni and they have three children: Curtice, Beth Anne, and John

Book preview

Copyright © 2018 by David F. Rankin.

Library of Congress Control Number:   2018907570

ISBN:           Hardcover                 978-1-9845-3747-8

                     Softcover                   978-1-9845-3748-5

                     eBook                         978-1-9845-3749-2

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner.

Any people depicted in stock imagery provided by Getty Images are models, and such images are being used for illustrative purposes only.

Certain stock imagery © Getty Images.

Rev. date: 07/27/2019

Xlibris

1-888-795-4274

www.Xlibris.com

773538

CONTENTS

Dedicated In Honor Of:

Acknowledgements

Introduction

Chapter 1   How Many Isms Do You Understand?

Chapter 2   Just What Is Capitalism Anyway?

Chapter 3   We’re From the Government, and We Are

Here to Help You

Chapter 4   The Federal Explosion: What Happened?

Chapter 5   Incentives Matter, Don’t They?

Chapter 6   The Youth Unemployment Maximization Act

Chapter 7   Dead-End Jobs: Fact or Fiction?

Chapter 8   Taxation without Common Sense

Chapter 9   What’s So Important about a Central Bank?

Chapter 10   Take That, You Dirty Rat!

Chapter 11   How Do You Get Economic Growth?

Chapter 12   Have We Discovered the Money Tree?

Chapter 13   You’ve Got to Be Kidding!

Chapter 14   What Are You Thinking About—Retirement?

Chapter 15   The Choice Is Ours!

Notes

DEDICATED IN HONOR OF:

T he 56 signers of the Declaration of Independence who, on July 4, 1776, took a bold action that put their lives and those of their families in great peril, for the cause of freedom.

https://www.archives.gov/files/founding-docs-declaration_signers

_gallery_facts.pdf

ACKNOWLEDGEMENTS

F ounded in 1979, the Murphy Lecture at my home campus of Southern Arkansas University gave me the opportunity to rub shoulders with some of the greatest economic and business minds in the country. Mr. Charles Murphy, Jr. of Murphy Oil generously funded a lecture series that made this possible. Thousands of our business students and area citizens have been able to hear and meet the likes of Thomas Sowell, Arthur Laffer, Walter Williams, Stuart Varney and so many national figures. Visiting with these lecturers over the years provided me the opportunity to gain a much-improved perspective on the economic issues of our times. In addition, an opportunity to visit extensively with Milton Friedman provided a rare treat as the result of having one of my students place nationally in the Americanism Educational League economic essay contest.

Both President John Kennedy and President Ronald Reagan impressed on me that sound economic policy can be implemented at the national level. They each proved that national change is actually possible.

The students I have had the privilege to teach over the last fifty years have provided the excitement and satisfaction of watching them grow intellectually and broaden their understanding of the economic world in which we live. The lectures, presentations, and class discussions over the years continue to strengthen my passion to preserve the freedom of the marketplace.

I am grateful to my family who proved a great sounding board for economic ideas around the dinner table. My wife Toni, as well as all three of our children, spent a semester studying macroeconomics under the author. It is amazing the family survived, but it turned out great.

I am also grateful to Governor Mike Huckabee who appointed me as a member, and later chairman, of the Governor’s Council of Economic Advisors. This allowed me to be involved with the State Revenue Forecast and other economic issues through the years in his administration as well as the following administrations of both Governor Mike Beebe and Governor Asa Hutchinson.

INTRODUCTION

A s a professor of economics and finance—and sometimes a business dean and even a university president, it has become obvious to me that there are a lot of people in America who just don’t have much of a clue about how the real world of economics actually works. This continues to be emphasized as important government officials call for higher and higher income taxes, higher minimum wages, burdensome and expensive regulations on business, the erection of barriers to international trade, and many other measures that can reduce economic growth and employment. These proposals are reported as serious economic statements with little regard for the economic destruction these policies can create.

Why do otherwise sensible people support bad economic policy? It has to be that they have not ever seriously considered the discipline of economics and realized that there is a great difference between economic fiction and economic fact. They do not seem to realize that just believing something does not make it reasonable, possible, or desirable.

As a general aviation pilot, I am struck by the parallels between piloting an aircraft and commonsense economic policy. Aircraft have many dials and gauges, but three are what I call the stay-alive gauges—plus, of course, the fuel gauge. The altitude indicator is important to be sure that you are flying high enough to avoid the ground or anything attached to the ground. The airspeed indicator needs to be attended to since it is important not to be so slow that the aircraft falls out of the sky and not to be so fast that the wings get ripped off. The attitude indicator is essential to making sure that the pitch of the aircraft and the aircraft wings are in a safe configuration.

It does not matter whether the pilot is a Democrat, a Republican, a member of another party, or an independent. The pilot has to pay attention to these gauges or bad things happen.

It is no different when it comes to economic policy. If you violate the basic principles around which economic decisions are made, bad things will happen. No one can repeal the laws of supply and demand, the freedom and efficiency of private property, or the incentive role of profits in creating production. In addition, if the government grows too large and interferes with the economy too much, the airspeed of the economy will be slowed and, at the extremes, it can result in an (excuse the pun) economic crack-up.

Many young students come to our universities with scant understanding of the basic principles of economics, and they frequently emerge four or five years later with little improvement in their condition. With the exception of business majors, most college graduates never take even one course in economics. It is unfortunate that we issue college degrees to people who have never seriously studied this essential discipline, some of whom will, at some later date, attempt to influence state and national economic policy.

With this in mind, I have set out to remedy this situation with a book about what citizens need to know about economics. All one needs to do is become familiar with the following pages in order to have a general understanding of some of the critical economic issues of our times. I hope you will read the following pages with interest and perhaps pass this copy on to one of your friends. This is particularly a good idea if your friend has never had a course in economics. You never know, perhaps you and your friend will actually become excited about this whole idea of sensible economic policy. It’s like one of my students told me after class one day, Professor Rankin, I can’t believe it. I actually like this stuff.

It could happen to you.

CHAPTER 1

How Many Isms Do You Understand?

A ccording to Nobel Prize–winning economist Milton Friedman, there is only one alternative to free markets. Force: some people telling other people what to do. ¹ One of the most powerful quotes of our time, this statement sums up what citizens can expect when their nation departs from capitalism en route to some other ism.

The great Austrian economist Ludwig von Mises observed, There are two methods for the conduct of affairs within the frame of human society—i.e., peaceful cooperation among men. One is bureaucratic management; the other is profit management.²

Friedman told us that we can have free markets or force, and von Mises explained that there is the profit system (capitalism), and then there is bureaucracy. With such a clear choice, why would any people choose force and bureaucracy? The reason is that many generally do not fully understand the choices, and